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Specialists Robert Tuccillo, left, and Jennifer Klesaris work from the floor of the New York Stock Exchange, Wednesday, June 16, 2010, in New York. (Richard Drew / AP Photo) The key to understanding the European economic mess is looking back to the American banking crisis, writes Andy Kessler—Greece is like Bear Stearns, Germany is JP Morgan, and guess which country plays the role of Goldman Sachs?
Even a win in the World Cup soccer tournament won’t save Europe. Nor will the G-20 meeting in Toronto this week. With Grecian urns, Irish eyes, Spanish flies, and Portuguese waterdogs all up to their eyeballs in debt, it’s only a matter of time before the whole venture implodes. Even after an almost trillion dollar bailout across Europe, Moody's Investors Service last week downgraded Greece's debt from A3 to Ba1--junk bonds.
We’ve seen this movie before—in 2008, when it was banks, not countries, reeling out of economic control. Once you recognize this pattern—desperate nations behaving just as the desperate banks did—the next 12 months of news will all make sense. Here is a handy guide.
I’d like to say that Warren Buffet is Switzerland, but I think I’ve stretched this analogy much too far.
Greece is clearly Bear Stearns. They’ve taken on too much debt, used derivatives created by Goldman Sachs to put off payment well into the future, and aren’t generating enough tax revenue to pay for their bloated expenses. The cost of Greece’s debt financing is skyrocketing, now 8 percent higher than the benchmark German bund. Either Athens defaults, causing more firebombs to be tossed and even larger riots in the streets, or the European Union arranges a takeover by deep-pocketed Germany.
Germany is the JP Morgan of this story. It will provide a lowball 200 billion Euros to Greece and then end up paying 100 billion, reminiscent of JP Morgan offering $2 and then paying $10 for Bear Stearns. Now wait a second, I can hear you complain, countries can’t merge like companies.
Of course they can, it happens all the time—though usually when tanks roll. Ask Poland. Or Hungary. In this case, Germany won’t legally own Greece, but in reality, it will absolutely be in charge of fixing Greece’s mess. My sense is the Germans will be quite good at tax collection and not so strong at dismantling the welfare state. But Greek debt will be resolved and maybe the Euro will even rally.
But it won’t be over quite yet. That’s because sadly, Spain is Lehman Brothers. With 22 percent unemployment, and loaded with debt and deteriorating real estate prices, who is going to save it? Tongues will wag that defaulting on debts will teach a lesson to countries that live beyond their means. As a huge exporter, the carcass of a bankrupt Spain will be attractive to some country, probably in the Middle East, given Spain’s multicultural history. This country will be to Spain what Barclays was to Lehman, buying the parts of Spain it wants—say Barcelona—and dumping the wine business on France.
France, by the way, is Morgan Stanley; they have so many of their own problems that they can’t truly be part of any solution. Like Morgan Stanley, France will probably take some money from a large Japanese bank and then ignore them.
Italy, which always seems to drag down the rest of Europe, is, of course, Merill Lynch. It is not really good at anything in particular, though it has retail offices in the form of restaurants and pizzerias across the globe. Still, Italy is a net destroyer, not a creator, of wealth. Not wanting to return to the days when it cost 5,000 Italian lira to pay for a cup of espresso, Italy will (again) fall under the ownership and control of the German state, bringing flair and design to Germanic rigidness. A nice match. The Greeks only have islands.
12 June 19, 2010 | 7:05pm Twitter Emails
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informed. entertaining. fun. will read.
With Obama's massive deficit spending, the US is on the road to being the next Greece. But since we aren't part of the EU, we can't be Greece----I guess that means Obama is turning the US into the next Iceland.
HOLY SHIT IT ALL MAKES SENSE NOW: Eric Cantor's financial disclosures reveal that he bets against U.S. Treasury bonds. House Minority Whip Eric Cantor (R-VA) has often expressed concern for how Obama administration policies are supposedly a "grave danger to America's prosperity." Now, the Wall Street Journal finds that Cantor actually invests in an exchange-traded fund that "takes a short position in long-dated government bonds" - effectively betting against the U.S. Treasury bonds that the government uses to fund its operations: [Cantor], the Republican whip in the House of Representatives, bought up to $15,000 in shares of ProShares Trust Ultrashort 20 Year Treasury ETF last December, according to his 2009 financial disclosure statement. The exchange-traded fund takes a short position in long-dated government bonds. In effect, it is a bet against U.S. government bonds - and perhaps on inflation in the future. If Cantor truly cares about "America's prosperity," one would have to wonder why he is literally betting against its financial future. The Washington Independent's Annie Lowrey adds that "Cantor is not a very canny investor. The fund is down 31 percent this year." So there it is ladies and gentlemen, the RNC/GOP is just a giant Ponzi scheme ACTUALLY BETTING AGAINST AMERICA'S FUTURE! So now we know why the GOP has taken our Govt hostage. How many more repubs are involved?! No, its not illegal, but kind of ironic that a politician who claims to be 'conservative' and concerned about America's prosperity would bet AGAINST it's prosperity.
Nice attempt at having a lucid moment before warping it into stupidity. Considering the long term destruction Obama has already been able inflict on the US economy it would still take years for even a fiscally responsible republican congress to straighten out the damage. Here's an idea brilliance, YOU buy all the treasury bonds you can get, why not put your life savings in them right now if you have so much faith in Obama. We still need suckers like you and China to prop things up for the next 5 or 10 years. Cantor betting against the treasury is really the smart play at this point. Certainly it is consistent with his position that Obama is taking down the economy.
'long term destruction' ?? DO YOU HAVE ALZHEIMERS??? In 2008 - after 8 years of bad leadership THE ECONOMY FELL APART ENTIRELY - only to be saved by massive government bailouts to banks and auto, without which we would b sunk. We are STILL REELING from that mess. It will take 10 years to clean up the mess left by Bush, don't go blaming this on Obama or go to hell.
Ummmmm, the recession started in 2007.
The picture that went along with the article said a thousand times more than the article and its writer who are stuck inside the mental box that is the monetary system. "The Only War is the Class War". That's it, sums it up beautifully. "Same as it Ever Was, Same As it Ever Was, Time isn't Holding Up and Time isn't After Us, Same As it Ever Was, Same As it Ever Was." Those with wealth and power not willing to give it up are the enemy to humanity. The monetary system has failed the human species and the Greeks who have led us into the rise of Western Civilization are leading us into the next stage of human socialilogical evolution. We can no longer function in society with Haves and Have Nots and if the rich don't realize this willingly........well... I think we all know how this is going to turn out.
Not really. The non-Wealthy and powerful wanted to retire at 60 an chill out for 25 years until they died on the beach and everyone else in the country to pay for it. Sadly, there is no 'everyone else' in the country.
Yes jomamas. it sounds like someone else is supposed to fix the problem.
Good analogy through and through, but one: Goldman Sachs is the tax havens of Europe meaning they are Switzerland, Austria, Liechtenstein, and Luxembourg with a touch of Channel Islands and a smidgen of Andorra and San Marino. The British just work there. Note, while bank secrecy makes it impossible to know who is banking in Austria or how much is bunkered, aggregated bank balances show a tremendous influx of foreigners bunkering money in hidden accounts. The British bankers up and moved to Switzerland where they are sending housing prices through the roof. Tax havens rule, the rest just drool.
"On the other hand, you can't really bail out a country without massive structural changes, cuts in entitlements, huge reduction in government as a percent of GDP, and a rewriting of the social contract between government and workers. Often, bankruptcy or the threat of it is the only way these nasty tectonic-shifting changes can be pushed through." How ironic that a resident of California made this statement! Is it a case of projection or extrapolation? The government bubble is the next one about to burst as governments at every level in all regions become unable to service either their debts or their constituents. Not that corporate governance offers an alternative. What's the difference anyway when a succession of Goldman Sachs execs "serve" as Treasury Secretaries? There will be some tectonic-shifting changes for sure. Or as we like to say at the beach, "Shit's gonna hit the fan!" Wouldn't you agree, Mr. Kessler?
Hillarious article! It is ironic that the Germans are doing with money what they couldn't do with tanks. I'm laughing so hard my sides hurt.
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